TRUSTS IN ESTATE PLANNING
A trust, like a will, is an instrument used to distribute a person’s property according to their wishes. A trust works by transferring property into the care and management of a trustee, who can be either a person or an institution. The assets or income derived from the assets of the trust are then passed on to the trust’s beneficiaries, according to the instructions of the creator of the trust.
Although there are many different types of trust with many different purposes, there are two main categories of estate planning trusts: living trusts and testamentary trusts. Trusts may also be revocable or irrevocable. Revocable living trusts are popular as a way to avoid probate because property in a trust at the settlor’s death is not part of the deceased’s estate and therefore is not subject to probate. Instead, the successor trustee, who is generally named in the trust instrument, may take immediate control of the trust and begin distribution of the trust property according to the wishes of the settlor.
The successor trustee is called the successor because in a revocable living trust, the settlor is usually the trustee until the settlor’s death. A revocable living trust allows the settlor to retain control of the assets in the trust and to change, add, or revoke the trust at will. Sometimes when a revocable living trust is used, a pour-over will is added, which provides that all assets remaining in the estate on the death of the testator are transferred to the trust.
Testamentary trusts transfer property into a trust upon the death of the settlor through a will that provides for such a transfer. Since the trust wasn’t created until the settlor’s death, the property is still subject to probate, but a testamentary trust may serve many other useful purposes. For instance, a trust can be used to control how and when a beneficiary will receive funds. This is often a strategy to protect property in the trust from a beneficiary’s creditors, while still providing for the support and care of the beneficiary. This can also provide a means to support one beneficiary until death with the income from the trust, while preserving the trust assets for another beneficiary. These are just a few of the ways a trust can be utilized in estate planning.